A sigh of relief: What the US-India trade deal means for the textile and garment industry

Not even two months in, and the year 2026 already seems to be a promising one for trade deals. After the ink is barely dry on what observers have called the “mother of all trade deals” - the free trade agreement between the European Union and India signed on 27th January - another one is taking centre stage. Indian prime minister Narendra Modi and US President Donald Trump announced a landmark trade agreement on 2nd February, which has sent a surge of optimism through the textile and garment sectors.

After a period of punitive tariffs that reached as high as 50 percent due to geopolitical friction, the reduction of reciprocal tariffs to 18 percent is being hailed as a critical lifeline. For an industry that contributes significantly to India’s GDP and employs millions, this deal represents more than just a fiscal adjustment; it is a restoration of global standing.

Restoring global competitiveness

Thus, the immediate sentiment from industry bodies is one of profound relief. The high tariff wall had previously priced Indian garments out of the American market, allowing competitors in Southeast Asia to gain ground. According to Ashwin Chandran, chairman of the Confederation of Indian Textile Industry (CITI) as quoted in ANI News, the 18 percent rate finally allows Indian manufacturers to breathe again: “This reduction in tariff will ensure our textile and apparel exporters are once again in a position to compete effectively in the US market, the single-largest market for India's textile and apparel exports.”

Beyond the balance sheets, the deal is expected to reignite the engines of production in major hubs like Tiruppur and Noida. During the height of the tariff dispute, many factories were forced to operate at reduced capacity, leading to widespread concerns about job security. The CITI chairman further emphasised the social impact of the agreement, adding: “This deal will also ensure that factories can run at full steam once more and job creation can get back to previous levels” according to The Hindu.

Strategic advantage over rivals in the region

Market analysts suggest that the new 18 percent tariff provides India with a “marginal but significant” edge over its nearest competitors: While countries like Bangladesh and Vietnam have long dominated the low-cost garment space, they currently face US duties in the region of 20 percent. According to reports in The Times of India, the industry views this as a strategic opening: "At 18 percent, the levy on Indian garments will be marginally lower than the 20 percent faced by those made in Bangladesh or Sri Lanka.”

The sector is now eyeing a return to double-digit growth as the summer order cycle approaches. Industry experts believe the timing is impeccable, preventing a long-term shift of Western buyers toward other sourcing destinations. Prabhu Dhamodharan, convenor of the Indian Texpreneurs Federation (ITF), offered a bullish outlook on the recovery in the Business Standard: “From FY27, the sector can see month-on-month double-digit growth in apparel and home textile exports, lifting the monthly apparel export run rate to 1.5 billion to 1.6 billion US dollars.”

Strengthening supply chains

The deal is also seen as a catalyst for deeper investment in the Indian manufacturing landscape. Large conglomerates with significant footprints in both nations view the agreement as a foundation for more integrated operations. “We see this agreement helping shape more resilient supply chains, unlocking manufacturing opportunities and driving long-term economic competitiveness in both the US and India,” commented Kumar Mangalam Birla, chairman of the Aditya Birla Group, according to The Hindu.

A cautious path forward

After the India-US trade deal being stuck for month, Trumps announcement took many by surprise while others point to the pressure created on the Trump administration by the India-EU free trade agreement. After all, India buying more European goods instead of US ones would hit the US economy hard.

The trade deal may come at a price though: as hinted earlier and repeated by Trump in his social media post on Truth Social, the US may require India to stop crude oil imports from Russia. While welcoming the announcement of the reduced tariff on Indian goods, Modi did not mention anything about crude oil imports from Russia.

For now, the mood in India is celebratory, with stock markets and the rupee already gaining in view of the latest development. “While the devil is in the details, it removes a hanging sword over the rupee, equity and rates market. Let us hope that it is a win-win deal for both the countries,” summed up fund manager Nilesh Shah according to BBC.